Headlines
• UK Q3 GDP on tap –
Deceleration from 0.7% to 0.6% expected.
• GBP/EUR close to two-month high –
On enhanced ECB easing bets.
• GBP/USD rises 50-pips –
US durable goods on tap.
• US consumer confidence could support ‘Greenback’ –
Analysts predict score of 103.
Sterling
The Pound shrugged off a decline in the Confederation of British Industry’s manufacturing index yesterday to maintain a sturdy exchange rate against most of its currency peers.
The CBI report showed that new export orders slumped to a three-year low in October as weakened demand from China and a stronger Pound weighed on demand for British goods. The downbeat balance of -8% could have hurt the Pound but the minimal reaction in markets suggests that investors were more interested in this morning’s third quarter GDP report, which is tipped to come in at 0.6%. Although this would mark a slowdown from the 0.7% growth registered in the second quarter, it would probably be considered sturdy enough to prevent a marked depreciation in Sterling.
Euro
The Pound to Euro exchange rate remained close to a two-month high yesterday as demand for the single currency remained muted following last week’s dovish policy statement from European Central Bank President Mario Draghi.
Data in Europe showed that German business sentiment remained upbeat in October, with the IFO index slowing minimally from 108.5 to 108.2, despite the Volkswagen emissions scandal. The relatively muted reaction shows that German business leaders consider the scandal a one-off and do not anticipate a spill over into other areas of the economy. However, the IFO numbers were not enough to prompt a recovery in the Euro, which remains nearly 300 pips weaker than before Draghi’s dovish ECB statement last Thursday.
US Dollar
Sterling strengthened by around half a cent against the US Dollar yesterday in reaction to a downbeat US new home sales print of -11.5%, which massively undershot expectations of a mild -0.6% contraction. The US ecostat weighed on demand for the ‘Greenback’ ahead of this Thursday’s policy announcement from the Federal Reserve.
Markets are 93% sure that the Fed won’t raise rates this time out and if other ecostats due for release this week also disappoint there is a good chance that the US central bank won’t hike at all in 2015. This afternoon’s durable goods orders print is predicted to decrease by a further -1.3% in annual terms following on from the previous month’s score of -2.3%. But the US Dollar could avoid any serious losses if the US consumer confidence index comes in at 103.0 as predicted by a consensus of analysts.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained relatively flat yesterday as traders tried to make sense of the People’s Bank of China’s latest piece of monetary stimulus. Although the PBoC rate cut should theoretically support the risk-sensitive ‘Loonie’ it appears that markets are taking it as a warning signal that the Chinese economy – the second largest in the world – is in a worse condition than initially understood.
Australian Dollar
The Pound failed to make any further gains against the ‘Aussie’ Dollar yesterday and the Australian Dollar failed to strengthen against Sterling. The main talking point was Friday’s decision from the PBoC to slash interest rates but the conclusion did not favour either currency. It seems that the threat of reduced growth in China – so much so that further easing was deemed necessary by Chinese officials – was seen to equal out the potential positive impact of looser policy in the country that purchases more Australian exports than any other.
New Zealand Dollar
The ‘Kiwi’ performed better than its commodity currency peers against the Pound yesterday, registering a 60-pip gain during the London session ahead of this morning’s GDP report, which is expected to confirm that British economic growth cooled in the third quarter.
However, the New Zealand Dollar gave back most of its gains during the evening when it was announced that the New Zealand trade deficit widened from -NZ$1.08 billion to -NZ$1.22 billion in September, missing expectations of -NZ$0.83 billion.
Data Released Today
09:30 GBP Gross Domestic Product (QoQ) (3Q A) Medium 0.6%
09:30 GBP Gross Domestic Product (YoY) (3Q A) High 2.4%
12:30 USD Durable Goods Orders (SEP) High -1.3%
14:00 USD Consumer Confidence (OCT) High 103.0